Updated 2024 Forecast: Mortgage Relief Soon
Lower rates, a strong economy and the easing lock-in effect means 2024 home sales will close stronger than 2023 and boost buyer power, an economist said.
SANTA CLARA, Calif. – Home price growth and inventory are now predicted to end the year with year-over-year gains, according to the Realtor.com 2024 Forecast Update. For-sale inventory is forecasted to see the biggest change as home sellers patiently wait for buyers instead of delisting. Existing home median sales price is forecasted to increase year-over-year despite elevated mortgage rates, rising inventory, and homes sitting on the market longer.
"During the first half of this year, we have seen home buyers continue to remain sensitive to mortgage rates, and while home sellers are also affected, the binds of the mortgage rate lock-in effect appear to be loosening for some homeowners," said Realtor.com Chief Economist Danielle Hale.
"These trends mean that home sales in 2024 will eke out only a small gain over 2023, but homebuyers have a fair amount to look forward to in the latter part of the year. Mortgage rates have finally begun to ease, and this trend is expected to continue as improving inflation enables the Fed to relax its tight policy, boosting homebuyer purchasing power. Furthermore, gains in the number of homes for sale mean that buyers have more negotiating power than they have had in recent years which should help buyers and sellers find the middle ground necessary for more sales. Fall has historically been a shoulder season for the housing market that benefits flexible buyers, and this year is setting up to be even more advantageous."
Lower rates finally arrive
Earlier this month, mortgage rates dropped to their lowest rate since May 2023 and recent data trends, especially relating to job growth and unemployment are providing evidence that Fed policy is working–perhaps working overtime – and a rate cut, even a large one, may be appropriate. Therefore, our forecast for mortgage rates has been revised slightly lower. Our yearly mortgage rate average forecast is slightly lower at 6.7%, and we revised our year-end forecast to 6.3% from 6.5%.
Annual home sales rebound-ish
Despite affordability headwinds persisting and mortgage rates hindering buying power, we have revised home sales upwards marginally to 4.1 million – an annual increase of .08%. Although there has been more inventory than expected, high mortgage rates this spring which coincided with the peak of the homebuying season had a dampening effect on home sales. For example, this June's Existing Home Sales dropped to 3.89M, the lowest level in 6 months. The arrival of lower mortgage rates will help draw homebuyers back into the housing market, but with a short runway left in 2024 and a sluggish first half to overcome, home sales are unlikely to take off.
Home sale prices continue to climb
Despite elevated mortgage rates, rising inventory, and homes sitting on the market longer, sales prices continue to rise. As a result, we've revised our initial forecast of a small price decline of 1.7% in 2024 to a rise of 4.6%. This significant revision reflects a resilient U.S. economy and a housing market that is still more broadly undersupplied despite recent upticks in inventory. What's more, the nation's largest housing markets remain a competitive marketplace and sellers still have the edge, though it has dulled over the past few years with higher rates. Of the 50 largest markets we track, only 12 are back to or above their pre-pandemic inventory levels.
Mortgage lock-in effect is easing aiding inventory woes
One of the factors that has hampered home sales – an under-supply of homes for sale – has finally started to ease. We have seen substantial improvement in inventory in the first half of 2024, climbing by more than 35% on a year-over-year basis. This is in stark contrast to our initial 2024 forecast that inventory would be down by 14%. Our revised estimate - the largest adjustment in our forecast - is now that inventory will be up 14.5%. Our revision reflects two somewhat unanticipated market developments this spring. First, some sellers who postponed their decision to sell last year - hoping that mortgage rates would be lower this spring were spurred to action by the better-than-expected mortgage rates at the start of 2024. Second, sellers who have put their home on the market seem willing to wait for a buyer rather than delisting, leading to longer time on market and inventory accumulating at a higher rate than expected.
Rents remain largely steady
Rents have remained largely steady in 2024 as the tug of war between rising multi-family completions boosting rental supply and elevated rental demand has resulted in a nationwide stalemate. We see demand from new households and continuing renters who might like to buy a home but find that today's rent versus buy scales are tipped too far in favor of renting, but rental supply has kept up as builders work through the backlog of multi-family units under construction.
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